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Assessing a Store Location

Nov 1, 2008

Location is of critical importance to a retailer. Deciding where to place a new store or move a current one requires a lot of study and thought. It should begin by identifying the retailer's target customers. What group or groups do you most want to reach?

"The more mainstream your appeal, the broader your array of competition, which will mean that you need to co-locate with your competitors to be a contender," according to Devon Wolfe, a managing director at Pitney Bowes MapInfo, a location consultancy. "If you're going the specialty route, your store will be more of a destination, which means that you can locate closer to your target customer and worry less about competitive positioning."

Once you narrow down your target customer as specifically as possible, figure our where that customer resides in your market, Wolfe said. You can use U.S. Census data, or you can purchase reports, maps, and advice from a data vendor or location consultant.

"Look for locations that have high counts of your customers in a quick driving distance and provide easy access and visibility. As you open the store, you'll certainly want to consider local marketing campaigns, especially if you're not associated with a branded franchise," Wolfe added.

Where you locate will also be affected by your business plan projections and how much you have budgeted for rent, said Bob Kramer, a retail consultant. "Assuming a 40 percent gross margin, I would budget 10 percent of sales to cover both rent and advertising," he advised. "Choosing the location will determine what is left for advertising."

If typical large malls asks around eight percent of sales for rent, that will leave you with just two percent for advertising. That's a slim budget for a new business that needs to get its name out, he warned.

In advising someone who wants to open athletic footwear stores, Kramer said, "Personally, I would not choose a major mall. And an outlet mall where sales are price driven seems to be an ill fit for top brand athletic shoes. You want to target customers willing to pay the higher price for an excellent shoe, with an excellent fit and excellent service," he advised.

Wolfe agreed: "Outlet malls tend to focus on either single manufacturers or closeout specialists who buy overruns and overstocks from various manufacturers. If that's not your business model, I would avoid the outlets."

In order to make a train station shop a viable retail location, it would need to draw more shoppers than just commuters, unless the commuting traffic there is huge, Wolfe noted. "The other thing to think about is whether a train commuter will be willing to take the time to comparison shop for shoes."

An independent location in a small strip center or a store in a center anchored by a large traffic generator such as a Walmart can often be a good bet, Kramer said. "Walmart is not likely to carry the top brands, but they will draw customers towards you."

Information in this article was edited from a story on the Business Week website.

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